Dapp Industry Report – February 2022

Dapp Industry Report – February 2022
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Reports

NFTs cool down while DeFi flashes sign of recovery amid global crisis

The recent turn of macroeconomic events has created a unique environment for the dapp industry. Although the crypto market is still trapped in a bear trend, new ways of implementing web3 are emerging from different sectors. The interest of government and financial institutions for instance is on the rise, propelled by the potential to embed blockchain use cases in society.

At the same time, the market for NFTs undergoes a consolidation phase. Although the trading volumes are down from January, the number of Unique Active Wallets (UAW) interacting with NFT dapps is higher than ever. Furthermore, institutional investors are increasingly being associated with DeFi, as the space evolves into a more consolidated and mature ecosystem. Meanwhile, the leading play-to-earn dapps, including several virtual worlds, remain engaged in promising developments. 

Key takeaways

  • Amid the global crisis, the dapp industry decreased its usage 5% from January attracting 2.35 million daily UAW, while growing 385% from February 2021.
  • Security issues draw attention again; more than $375 million was lost due to digital thefts and attacks.
  • The NFT space amassed over $10.6 billion in trades as their presence grew in blockchains outside of Ethereum.
  • On-chain and macro indicators are improving for DeFi; the interest of institutional investors keeps rising, and the top DeFi dapps are slowly regaining control. 
  • Terra positions as Ethereum’s runner up with more than $20 billion locked in DeFi protocols, while Fantom challenges the BNB chain for the third position.

Table of contents

2.35M UAW connected daily to dapps amid bear market, Russia-Ukraine conflict

Amid the ongoing crypto bear market, which saw cryptocurrencies dip as much as 50% since November, and the challenging global scenario, which culminated in Russia invading Ukraine on February 24, the usage in the industry decreased 5% from the previous month. As such, 2.35 million UAW connected to a dapp in February on a daily average. On the other hand, this can also serve as a reminder to show that the industry has grown 385% compared to February 2021.

Ethereum still commands a visible market share due to the high NFT activity and incumbent DeFi dapps; nonetheless, peer blockchains attract more users into their networks. Binance Smart Chain, now part of the BNB Chain, is still the leading network in terms of daily use, with 608,000 UAW connecting to the network on a daily average, despite a 17% decrease from the previous month.

In what can be considered a down month for dapp’s activity, the Flow blockchain registered a 49% increase thanks to the drop of exclusive NBA Top Shot packs and the launch of the NFL All Day marketplace. Meanwhile, the use of Tezos rose 23% from the previous month. 

Over $375M lost due to digital thefts and attacks

Our 2021 Yearly Report highlighted the increased presence of malicious actors in the space. Approximately $4 billion was stolen in more than 160 attacks last year. In February, security issues made the headlines once more. 

The first one targeted the Solana Wormhole, the leading bridge platform to receive and send tokens in and out of the Solana network. The hacker exploited a vulnerability in the Solana contracts, draining 120,000 ETH or $320 million in the process.

Another security issue occurred on OpenSea on February 20, when a phishing attack resulted in 32 wallets losing 254 NFTs with a net worth of $1.7M. This attack is one of the most high-profile and malicious ones to target NFTs specifically. 

Most of the stolen assets came from recently launched collections like Azuki and Clone-X, rather than CryptoPunks or the lone Bored Ape. The situation may have occurred because the victims were less experienced traders with little time in the NFT space. 

It is worth mentioning that the attack was not the result of a vulnerability of any OpenSea contract, but of traditional phishing. The incident reminds us of the latent risks present in the space, especially as the value of certain assets makes them more coveted. To learn more about improving the security in the space, listen to our last episode of Market Movers.

NFT adoption up while trading volume cools down – $10.6B traded in February

The adoption of NFTs remains on the rise even though the trading volume might suggest otherwise. On-chain metrics that measure demand signal that the number of unique traders and the sales count have increased 8% and 2% across all protocols month-over-month (MoM). 

On the other hand, excluding LooksRare activity, NFTs generated over $4 billion in sales in February – shrinking 28% from the last month. Still, the trading volume achieved in February surpasses the numbers seen in November and December. 

Considering LooksRare activity, the trading volume for the entire space adds up to $10.6 billion for the month. However, trading volumes decreased 40% in that marketplace, likely driven by the ending of the first LOOKS token distribution phase

Another positive trend for the category is the impact newer projects like Clone-X and Azuki have had in the space. Azuki was the most traded collection in February (excluding activity in LooksRare), surpassing established projects like Bored Ape Yacht Club, CryptoPunks. The demand for recently launched projects has been solid, as proved by Karafuru, Cool Pets, Invisible Friends, and several others that ranked among the most traded collections this month. 

Despite the negative narrative provoked by the OpenSea attack and resistance from the traditional industry, NFTs are continuing to find a way to increase their value as digital assets.

Increased NFT activity outside of Ethereum

Another aspect that signals a positive state of NFTs is the increasing presence of the category in blockchains outside of Ethereum. Ronin, for instance, is home to the most valuable collection in the entire space, as Axie Infinity became the first collection to surpass $4 billion in all-time sales. 

Meanwhile, the NFTs from Crabada, a play-to-earn dapp hosted on Avalanche, have been among the most traded ones. The NFT volume on Avalanche has grown 25% MoM, and a stunning 1,320% from last year. NFT Trade, an NFT marketplace with a multichain approach (Ethereum, BNB, Polygon, and Avalanche), has increased its volume by 40% on the Avalanche network from $10.7 million to more than $15 million since the end of January. The Particle Collection marketplace is another platform that showcases NFTs’ potential on Avalanche by allowing fractionalization of recognized art pieces like Bansky’s “Love is in the Air.” 

On the Flow blockchain, the launch of the NFL All Day marketplace, along with exclusive and rare NBA Top Shot packs, has produced $188 million. Flow’s BloctoBay doubled its trading activity in February, while marketplaces like Magic Eden оn Solana or Obkt and Hic et Nunc оn Tezos show that NFTs can thrive outside Ethereum. 

Macroeconomic implications for DeFi

DeFi dapps have been the most affected decentralized applications in the latest downward cryptocurrency trend. The number of UAW connected to DeFi dapps surpassed 786,000 per day on average to represent 35% of the blockchain industry’s activity – a 4% decrease MoM. Yet, in February, the macroeconomic situation appears to be changing. 

Institutional interest in the DeFi ecosystem has risen over the past weeks. Custodian and investment banks and other types of financial institutions – including JP Morgan, BNY Mellon, Japan’s biggest bank Mitsubishi UFG, among several others – have all but confirmed their interest in cryptocurrencies and their corresponding DeFi applications. 

At the same time, the Ukraine conflict and Canada’s latest intention to freeze bank accounts have overexposed the need for a decentralized ecosystem. While the potential mass adoption of DeFi might seem far compared to games and NFTs, this type of macroeconomic implications, along with a more mature DeFi ecosystem, can quickly change the narrative.

New rankings in DeFi’s TVL leaderboard

The Total Value Locked (TVL), perhaps the most essential DeFi on-chain indicator, signals a more complex and mature space. DeFi dapps held $180 billion in assets locked at the end of February, a 3% MoM increase.

Ethereum is still the dominant network in this category, although its dominance decreased from 65% at the end of January to 61% in February. Ethereum holds over $110 billion in TVL, with Curve and Maker surpassing $15 billion each. 

However, significant changes occurred in the TVL rankings. Terra has surpassed BNB Chain as Ethereum’s runner-up, with Fantom coming close. Previous DappRadar Reports mentioned how Terra gradually formed a DeFi ecosystem driven by its UST stablecoin and the Anchor AMM. 

The case of Fantom is also notable, as the layer-1 solution increased its TVL almost tenfold from $1.4 billion at the end of September to $11.1 billion in February. Its TVL grew 23% against January. 

Blockchain games keep building for the future

The blockchain game sector failed to expand its audience for the first time since June. On average, over 1.1 million daily UAW connected to game dapps in February, contracting 13% from its January numbers. Games’ dominance in terms of share of the industry’s activity also decreased from 52% to 49%. 

Nonetheless, it is positive to see that the most established game dapps retain their player base for a prolonged period, and also acknowledge that the current situation has affected all categories to some extent.

Also, the current state of metaverse dapps is promising. Nifty Island successfully kicked off its alpha season, while The Sandbox and Axie Infinity (Origins) are preparing for March’s respective alpha seasons. Even virtual land NFTs enjoyed an excellent streak. For instance, NFT Worlds’ floor price quadrupled past 12 ETH since January. To keep learning about the blockchain game industry, keep an eye on the upcoming DappRadar’s x BGA monthly Blockchain Games Report.

Conclusion

Without a doubt, the current scenario has created a challenging environment for the markets. In recent days, the interest shifted slightly away from the dapp industry to attend to a situation that requires our attention. Nonetheless, blockchain and decentralized applications have shown the world the power of decentralized technologies, including the millions donated to Ukraine.

Furthermore, DeFi has recently flashed some positive signs after a challenging period. The increased interest from institutional investors, mainly financial organizations, provides the category with an enticing scene for the next few months, one where regulations should be widely involved. Although the usage is still aligned with the industry trends, an ecosystem that shows Terra and Fantom as established challengers offers a more complete and mature ecosystem.

On the NFT side, the trading volume might be perceived as a contraction for the category. However, on-chain metrics measuring demand say otherwise, as the number of unique traders and the sales count increased this month. The adoption of NFTs appears self-sustaining as a new wave of solid new projects has arisen along with more tangible use cases for both the metaverse and real life.

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